The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Mpact (JSE:MPT). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Mpact with the means to add long-term value to shareholders.
See our latest analysis for Mpact
How Fast Is Mpact Growing Its Earnings Per Share?
Over the last three years, Mpact has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. Mpact's EPS shot up from R3.52 to R4.52; a result that's bound to keep shareholders happy. That's a commendable gain of 28%.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Mpact remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 7.1% to R12b. That's progress.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
Mpact isn't a huge company, given its market capitalisation of R3.7b. That makes it extra important to check on its balance sheet strength.
Are Mpact Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Despite R33m worth of sales, Mpact insiders have overwhelmingly been buying the stock, spending R46m on purchases in the last twelve months. An optimistic sign for those with Mpact in their watchlist. It is also worth noting that it was CEO & Executive Director Bruce Strong who made the biggest single purchase, worth R14m, paying R29.20 per share.